Bonds Coming Under Pressure

We are beginning to observe institutional investors withdrawing from bonds issued by companies whose credit ratings are in question. Many are also selling off other classes of bonds in anticipation of higher rates. The trend toward investing in high yielding debt mainly by pension funds has begun to reverse albeit gradually.

Because of the low yields, pension funds, in particular, have been forced to run into high-yield bonds accepting a higher risk of default of the debtors. Much of this has been into emerging markets, but also questionable corporate debt.

Many corporates have issued a lot of new debt in recent months trying to lock in the lower yields before everything moves up. With the European Central Bank (ECB) looking to end quantitative easing, the Bank of England looking to raise rates as well as the United States, it does not take a genius to figure out this is not the time to buy bonds.

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